World markets brush off soft Microsoft, Amazon earnings as rally goes into 10th day

By Pan Pylas, AP
Friday, July 24, 2009

World markets brush off soft Microsoft earnings

LONDON — World stock markets rose again Friday despite some downbeat U.S. earnings news from the likes of Microsoft Corp. and Amazon Inc. — another sign that risk appetite remains stronger after a two-week rally that has sent many indexes around the world to 2009 highs.

In Europe, the FTSE 100 index of leading British shares was up 28.09 points, or 0.6 percent, at 4,587.89 despite the news that the British economy contracted by 0.8 percent in the second quarter of the year from the previous three month period, way more than the 0.3 percent expected in the markets.

Meanwhile, Germany’s DAX index rose 33.40 points, or 0.6 percent, at 5,280.68 though investors in Frankfurt had more to cheer about after the respected Ifo Institute indicated that business optimism in Europe’s biggest economy improved for the fourth month running. Its main business climate index rose to a nine-month high of 87.3 points in July from 85.9 points in June. Again the rise was bigger than anticipated, with economists projecting an increase to 86.5.

France’s CAC-40 was also higher, up 19.55 points, or 0.6 percent, to 3,393.27.

The common thread running through the gains in Europe, as in Asia earlier, is the elevated nature of risk appetite at present following a run of better than expected earnings reports in the U.S. On Thursday, Germany’s DAX closed at its highest level this year, while the FTSE and the CAC were not far off.

The rally is expected to continue in the U.S. at least at the open, though traders noted that the approach to the weekend could well prompt a bout of profit-taking, after both the Dow Jones industrial average and the broader Standard & Poor’s 500 index have struck new 2009 highs.

Dow futures were 23 points, or 0.3 percent, higher at 9,014 while the S&P 500 futures rose 1.7 point, or 0.2 percent, to 970.60.

“Today could be a real battle between the bears and the bulls, it’s the end of the week and we have seen a 12 percent rise in most indices and a 15 percent rise in crude oil in the last nine trading sessions alone so some profit-taking is due but the bulls are still in control,” said Ian Horsley, an indices trader at Spreadex.

Many in the markets were surprised by the gains Friday after disappointing earnings from Microsoft and Amazon announced after Thursday’s close.

Microsoft reported a 29-percent drop in second-quarter net profit and a 17-percent slide in revenue amid continuing weakness for personal computers around the world. Its shares fell more than 7 percent in after-hours trading.

Meanwhile, retailer Amazon reported a 10-percent fall in net profit for the second quarter, partly related to a $51 million payment to settle a long-standing dispute with former partner Toys R Us. It fell 7 percent in after-hours trading.

“I suspect that the 9-day equity rally enjoyed in Europe and the U.S. will be closed out today in the wake of disappointing results from Amazon and Microsoft,” said David Buik, markets analyst at BGC Partners.

“Both failed to deliver the results expected after hours, which gave credence to the fact that the recession is far from over and it is not out the question that the U.S. could well be in for a double-dip recession,” he said.

While most of the focus this week has centered on U.S. earnings, the European reporting season is slowly kicking into gear, too, providing investors with crucial insights about whether the recession is easing as much as it apparently is in the U.S. Among others, steel company Arcelor Mittal, Deutsche Bank AG, carmaker Daimler AG, chemical company BASF SA and France Telecom SA will report their earnings next week and investors will be interested to see if the recent improvement in forward-looking surveys is being felt in the real world.

Earlier in Asia, Japan’s Nikkei 225 stock average rose 151.61 points, or 1.6 percent, to 9,944.55 and Hong Kong’s Hang Seng advanced 165.09, or 0.8 percent, at 19,982.79.

South Korea’s Kospi was 0.4 percent higher after figures showed the economy grew 2.3 percent in the second quarter as increased government spending and record low interest rates helped to insulate it from the global recession. Singapore and China have also released stronger growth figures in recent weeks.

Elsewhere, Australia’s market gained 0.6 percent, Singapore was 1.7 percent higher while Taiwan’s benchmark edged lower by 0.1 percent.

China’s Shanghai market gained 1.3 percent, shrugging off fears that a construction company’s massive share sale could weigh on stock prices. China State Construction Engineering Corp., the company that built the “Water Cube” swimming center for the Beijing Olympics, said Friday that it raised $7.3 billion in the world’s biggest initial public offering this year.

The Dow Jones Industrials, the stock market’s best-known indicator, shot up almost 190 points to 9,069.29, its highest level since November, and all the other big indexes gained more than 2 percent.

Oil prices hovered above $67 a barrel, adding to big gains made overnight. Benchmark crude for September delivery was up 9 cents to $67.25 a barrel. On Thursday, the contract added $1.76 to settle at $67.16.

In currencies, the dollar fell 0.1 percent to 94.92 yen while the euro rose 0.4 percent to $1.4215.


AP Business Writer Stephen Wright in Bangkok contributed to this report.

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